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Journal of International Relations and Development
Volume 2, No. 3 (September 1999)
The Political Economy of International Trade: The Relevance of the International Trade Organisation Project
By Jean-Christophe Graz
*
Introduction
In may 1998 the commemoration of the 50th anniversary of the multilateral trading system celebrated the establishment of the general agreement on tariffs and trade (GATT). 1 Yet, the GATT was originally a secondary agreement on tariff reductions to the more comprehensive negotiations on the International Trade Organisation (ITO), the third economic institution meant to be set up in 1948 alongside the International Monetary Fund (IMF) and the World Bank. Some textbooks do mention the ITO since the GATT was very similar in one chapter out of nine included in the ITO Charter 2 -- more precisely, chapter IV on general commercial policy provisions (Schwartz 1994:216-8; Hoekman and Kostecki 1995:12-5; Moon 1996; Rainelli 1996:17-8).. However, international political economy (IPE) scholars have generally neglected the ITO among the post-war bodies charged with the functioning of the international economic order. 3
This article argues that a study of the ITO may offer some clues to understanding the transformation of today's world. It aims to contribute to the growing body of scholarship in IPE aimed at bringing history back to this field of study: "historicizing IPE means seeing the present as a set of social practices situated in time and space" (Amin and Palan 1996:212). In this regard, the following article should not only clarify the continuity/discontinuity process in which contemporary changes take place. It should also facilitate a critical assessment of the current potential for a counter-movement seeing the reversal of the current trend of globalisation.
Globalisation is often considered to be an indisputable turning point of history. A borderless world, the twilight of sovereignty, sanction of the market have become common metaphors to express the fundamental shift supposedly brought along with the emergence of a homogeneous marketplace on a world-wide scale. Yet, numerous studies challenge this view (Hirst and Thompson 1996; Mittelman 1996; Gill 1997).. Their analyses demonstrate that the world economy is far from being genuinely global and that political authorities among the major economic powers have played an important role in shaping an environment favouring the market. Domestic or regional strategies of economic and social policy have therefore not become as irrelevant as usually claimed. Moreover, criticism of globalisation is expanding among social forces themselves (Gills 1997). Their claims reveal increasing concerns regarding any long-term sustainability of neoliberalism on a global scale. The brutality of the financial crises that have hit one country after another since the Mexican crash of 1994 is increasingly pushing re-regulation onto centre stage. Despite ongoing disagreement on any practical answer as long as the American and European economies remain not more directly hit by a financial crisis, various bodies such as the G7, the IMF, the Bank for International Settlements, as well as groups of experts and NGOs are deeply involved in redesigning the global economic architecture (Eichengreen 1999; The Economist 1999). The global economic meltdown we could face in the absence of new rules would be incomparably more disastrous than what millions of people endured during the Great Depression of the 1930s. According to Jacques Atalli, former Head of the European Bank of Reconstruction and Development, "we'd better undertake reforms before a world war than after"(Le Monde 1998).
Hence, it is widely agreed that it is an urgent task to strike a new balance between the economic and political spheres of society on a comprehensive scope and world-wide basis. This is precisely what the architects of the ITO had in mind 50 years ago. Instead of drafting blueprints as responses to a threatening economic collapse, they had no other choice than learning the lessons of the Great Depression and the Word War which followed it: although beggar-thy-neighbour policies should be replaced by a liberal environment, market forces should not impinge upon an effective implementation of economic and social policies inspired by Keynesian macro-economics and welfare state expectations.
More specifically, regarding the international trading system, the current transformation brought about by globalisation has often been referred to as a 'new trade agenda' including all sorts of trade-related non-border measures (Feteketuky 1992; Ostry 1995; Cable 1996).. With tariffs reduced to a nearly non-existent level and more market discipline imposed on important non-tariff barriers to trade such as quantitative restrictions, future multilateral trade negotiations are likely to revolve mostly around various aspects of domestic policies that are deemed to have an impact on trade. The distinction between trade policy per se and state-market relations in general is considered to have become increasingly blurred. A careful study of the ITO project provides some evidence that the comprehensive scope of the so-called new trade agenda era is in fact not so new. The ITO planners devoted most of their time to designing extensive provisions on the proper balance to strike between market rules and state-society relations on a wide range of trade-related issues. Even if there is strong evidence of a neoliberal shift in the current agenda of the World Trade Organisation (WTO), similar patterns of disputable issues remain.
The transformation in IPE and state legitimacy that surrounded the ITO project is the focus of this article. The first section recasts the history of the ITO negotiations from the early post-war commitments undertaken by the allies in 1941 to their demise, once the United States' Congress refused to ratify the ITO Charter in 1950. The second section pays particular attention to the principles and provisions of the ITO Charter that 53 countries signed in Havana in 1948. The third section outlines a framework of analysis for assessing the significance of the stillborn ITO from a critical IPE perspective. It examines the very contradictory aspects of the ITO Charter which eventually led to its demise at the United States' Congress. The ITO Charter indeed focused on a mutually compatible set of policies that blended free-trade objectives with a recognition of state intervention in the domestic sphere and sectoral aspects of international trade. Commitments to restore a liberal economy after the war came up against a new form of state legitimacy that relied heavily on the various instruments of the welfare state and Keynesian macro-economic policy. The external impact of these measures was expected to be potentially dangerous enough to trigger a bold attempt to normalise a wide range of state-society relations considered for their impact on trade. If the project did not survive American trade politics, it is because it faced the impossibility of reaching a broad international understanding on the proper balance between market rules and state intervention.
A Short History of the ITO Project
THE ITO IS THE THIRD INSTITUTION THAT SHOULD HAVE BEEN SET UP ALONG WITH THE IMF AND THE WORLD BANK IN THE POST-WAR ERA TO IMPLEMENT THE ARTICULATION BETWEEN INTERNATIONAL SECURITY AND ECONOMIC AND SOCIAL WELFARE LAID DOWN IN THE UNITED NATIONS CHARTER 4 . Its institutional origins go back to the early post-war international economic and political commitments undertaken by the allies in the Atlantic Charter and, more materially, in the trade-offs linked to the American Lend-Lease policy. The famous Article 7 of the Mutual Aid Agreement between the United States and the United Kingdom signed in 1942 enjoined the allies to open negotiations on a number of key normative issues for the post-war era as a counterpart to American military and financial support given by the United States to its allies during the war. 5 This article may be considered as the first step towards reconciling the historical antagonisms between an open international economy and socio-economic functions of the states directed to welfare and full employment objectives. From the outset, post-war planners from both sides of the Atlantic were deeply concerned by a comprehensive conception of international trade regulation which blended free-trade objectives with a recognition of important state interventions in various aspects of the economic sphere. Among them were some of the most distinguished scholars who wrote about the challenge in the late 1930s as well as after the beginning of the war (e.g., Hansen 1938; Staley 1939; Meade 1940; Moggridge 1980: Vol. XXIII-XXVII). Also of interest is one of the first documents on economic war aims produced by the group of experts established by the Council on Foreign Relations to work closely with the American administration. 6 Even before the American entry into World War II, the document claimed:
It is doubtful if the idea of free trade now has very much appeal save to a small group of business men and economists. Nor is it likely that anything approaching free trade will be achieved for a long time to come. Rather we should stress the value to all concerned of a great interchange of goods, to be brought about in part by a removal of trade barriers and in part by positive measures of government policy (Council on Foreign Relations, memorandum E-B32, 17 April 1941).
Though different in its content, the first exploratory draft of what was to become the Havana Charter reflects similar concerns. The "Commercial Union" scheme was originally drafted by James Meade, then a member of the Economic Section linked to the British Cabinet Offices. It was subsequently circulated among British and Dominions officials between autumn 1942 and spring 1943. 7 One of them produced a striking criticism of the issues at stake:
There is, I think, a fairly widespread illusion that those who are in favour of the Commercial Union scheme are supporting a policy of "laissez faire". The choice is not in fact between "laissez-faire" and planning but between international planning which, if successful, will leave room for a certain amount of internal "laissez faire" and the advanced degree of internal planning and control necessary to deal with a situation created by international "laissez-faire". The latter course must in my view eventually mean state socialism or something very like it (W.L. Gorell Barnes to Lord President, 18 March 1943, PRO, CAB 123/221).
These statements give evidence of the deep concern about a mutually compatible set of both liberal and interventionist policies. They explain the comprehensive agenda laid down for the first Anglo-American talks held in autumn 1943 in Washington on the trade related questions raised by the commitments from Article 7 of the Mutual Aid Agreement. These discussions hinged not only on tariff reduction formulas, preferences and quantitative restrictions, but also on their relation with subsidies, intergovernmental commodity agreements, international cartels, state trading, and finally, on the policy autonomy required for a proper implementation of macro-economic instruments directed to employment and social objectives. 8 However, any commercial commitment also depended on the conclusion of a satisfactory agreement in monetary and financial issues. In one of the first syntheses that Keynes and his colleagues at the Treasury made to support the creation of a "Clearing Union", one can read for instance:
The prevention of undesirable capital movements would be one important step towards ending, or at least, mitigating, the immense currency malaise which afflicted European countries in the nineteen thirties, which ended in the United States becoming the depository of the main part of monetary gold, and which contributed materially to the tying up of international trade in elaborate and harmful involutions. In addition, on any long view, there is a great need for a new or improved system or organisation for the settlement of international balances on current account. [...] the Clearing Union aims at substituting an expansionist for a contractionist pressure on world trade ("External Monetary and Economic Policy", Memorandum Submitted by the Treasury on Preliminary Discussions with the United States, R. P. (42) 2, 24 March 1942, PRO, CAB 87/2).
Priority was given then to negotiations that eventually led to the Bretton Woods agreements. This was the arena in which full employment issues were more fully addressed than within the trade agenda. On the trade side, there remained extensive cleavages on the proper scope and relation required by a commitment to both a liberal international economy and extensive state interventions in the domestic sphere. Once again, the research section led by Keynes in the British Treasury clearly identified the political problem at stake:
..[there remains] the problem how far the elimination of discriminatory practices can go without becoming incompatible with the trend of internal social and economic policy likely in the future to prevail both in this country and elsewhere (ibid.).
Positions taken on these issues largely transcended the state's territoriality. Contrary to the usual accounts privileging the hegemonic leadership taken by the United States, the ITO project was an outcome of close plurilateral negotiations even before formal international negotiations took place between 1946 and 1948. The harsh compromises sought in the negotiations resulted from strong supporters as well as arch-opponents at each national level. For instance, whereas in the United States, the supporters were coalescing around what Ferguson (1984) called the emergence of the second New Deal 'multinational bloc' of capital-intensive, globally competitive industries and their financial allies, in the United Kingdom the cluster came more from pragmatic considerations with regard to the huge balance of payments disequilibrium foreseen in the post-war era. The opponents included, on both sides of the Atlantic, radical labour, farm interests, a wide range of labour-intensive and poorly competitive small and medium range industries, financial interests linked to the Sterling Area and the New York bankers gradually opposed to the Bretton Woods Agreements. 9
It was not before the Anglo-American Loan Agreement of December 1945 that the American and British governments committed themselves publicly to establishing an ITO as a trade-off to financial assistance. Two preparatory sessions were held in London and Geneva in 1946 and 1947 before the opening of the United Nations Conference on Trade and Employment in Havana from November 1947 to March 1948. These negotiations were not confined to the most powerful trading powers of the post-war era. Ultimately, 53 countries signed the Final Act of the conference, including the members of the Commonwealth, Latin American Republics and the so-called 'backward' countries that acceded to independence in Asia. As with Bretton Woods, the Soviet Union declined to take part in discussions aimed at reorganising the capitalist economy at the world level.
In Washington, State Department free traders were gaining influence after the death of Roosevelt in April 1945. The Truman administration marginalised left-wing New Dealers that tried to put on an equal footing trade liberalising provisions and guarantees directed to full employment and economic planning. But Congress was powerful enough to seriously restrain State Department and White House objectives. Renewal of the Reciprocal Trade Agreements Act, first passed in 1934, was scheduled to take place in spring 1945. Thus, even before the Republicans gained a majority in both houses in 1946, Congress turned down a proposal to establish a new procedure that would have authorised multilateral across-the-board reductions in tariffs. American tariffs -- at an average of 40 percent -- were then among the highest in the industrialised world. The United States' economy accounted for half of world output in the post-war era and its share in world trade was about 25 percent (Woytinsky 1955:247ff).. In such circumstances, no substantial reduction of barriers to trade on a world level was possible without a drastic improvement in access to the American market. From the outset of the negotiations related to Article 7 of the Mutual Aid Agreement, the State Department was clearly conscious of the quid pro quo at stake:
The inclusion in the convention of multilateral tariff provisions, providing for a substantial reduction of tariffs, [...] would afford countries undertaking therein to remove other trade barriers of more importance to them (e.g. quotas) certainty as to the extent of tariff reduction in countries using tariffs as their principal protective device, and would therefore make it easier to obtain the removal of trade barriers other than tariffs ("Interim Report of the Special Committee on Relaxation of Trade Barriers ", NA, Record Group 59, LF 60D-224, Box 141, 8 December 1943).
The British were ready to go along with the American line to restore a liberal international economy. The catastrophic state of their balance of payments pushed hard for a bold programme devised to increase exports. The economic and strategic dependence of the United Kingdom towards Washington made illusory the temptation to break co-operative plans with the United States, a choice Keynes labelled "starvation corner" in his famous memorandum entitled "Overseas Financial Arrangements in Stage III" (Pressnell 1986:236-42). Yet London was not ready to abandon Imperial Preferences altogether. 10 The Labour Party which won a historic victory at the general elections held after the end of the war was keen on giving as much weight to welfare state commitments as to external adjustment constraints. In this sense, it tried to provide a positive response to the scepticism of the labour movement exemplified in the following statement by an official of the national confederation of British trade unions (the Trade Union Congress): "[Beside] the greatest possible freedom in international trade, [...] it was also desirable that there should be the highest degree of stability in our own economy. Would these two objectives be compatible?" 11 British delegates tightly defended the provisions able to render both objectives compatible. Most European delegations shared that perspective. But the Australians and New Zealanders were probably the forerunners whenever negotiations turned on the restraints to trade necessary for implementing the measures directed towards full employment or economic development obligations. In this respect, the Southern Dominions often upheld 'under-developed' countries' demands. Trading powers such as the United States or the United Kingdom were ready to take into consideration special provisions for development purposes. But they deeply under-estimated the weight of those demands and the extent of concessions necessary to reach compromises on each topic raised by this agenda.
When in March 1948 the time finally arrived for signing the Havana Charter, many aspects of the initial momentum had already vanished. The Cold War was moving along. International security would not be provided by a comprehensive international economic order tightly linked to collective security under the aegis of the United Nations. The Marshall Plan and the new strategic planning of the containment doctrine called for new priorities focused on rearmament, military alliances, and ad hoc economic programmes. In discussions with the British delegation to the ITO Conference in January 1948, William Clayton, the former Under-Secretary of State for Economic Affairs, "admitted very frankly that he found considerable difficulty in getting the United States authorities at Washington to take [...] interest in the Charter, their attention being [...] entirely devoted to Marshall Aid." 12 The concentration of the Truman administration on the stiffening of the Cold War had significant implications for the fate of the ITO. However, a failure of the Havana Conference would have been seen as a failure in the leadership the United States claimed for the free world. The Soviet Union would be in a position to make heavy propaganda use of the antagonisms that affected the capitalist economies. Moreover, with the Marshall Plan ratification process under way on Capitol Hill, it would give strong arguments to those refusing to spend public money on the defence of Europe. Facing the bulk of amendments forwarded at the negotiation table, Clair Wilcox, the Chief of the United States' delegation at Havana, thought of adjourning the conference as the only remaining answer to the challenge. But Washington briefed him that a weak Charter was better than none. 13
In the context of the beginning of the European Recovery Programme and the early NATO (North Atlantic Treaty Organisation) planning, the Charter was not submitted to the United States Congress before spring 1949 and another year passed before hearings took place. The Bill was never put to the floor of the House. Eventually, in December 1950, one could find, in the middle of a lengthy press release from the State Department about the GATT conference under way at Torquay, that the President agreed not to resubmit the ITO Charter to Congress (U.S.Department of State 1950, 18 December 1950:977). Because the Charter was never ratified by the United States' Congress, all the other signatory states abandoned the attempt to establish the organisation.
The ITO's comprehensive agenda did not survive the United States' trade politics. It faced the impossibility of reaching a broad international understanding on the proper balance between market rules and state intervention. The attempt to create a long-term comprehensive international organisation gave way to ad hoc initiatives. Programmes such as the Marshall Plan and its various institutional extensions like the Organisation for European Economic Co-operation (the forerunner to the OECD, Organisation for Economic Co-operation and Development) offered an effective, though much more liberal, alternative to the Havana Charter. As far as the GATT is concerned, up to the 1980s it was devoted mainly to tariff reductions; GATT remained vague on non-tariff measures; early attempts to tackle this agenda yielded meagre results. It would take another decade before the first development decade, sponsored in 1961 by the United Nations (Resolution 1710 (XVI) of the General Assembly), would address the development issues negotiated at Havana. Primary commodity issues would wait for OPEC (Organisation of the Petroleum Exporting Countries) and the new economic international order to come again to the forefront of the world trading system. Regarding full employment and other welfare provisions of the Charter, Keynesian-Beveridge policies were incrementally implemented at the national level. It transformed national economic policy of state practice throughout the industrial world. But it mainly remained an issue bound to the territorial state.
The Founding Principles of the Havana Charter
Nothing would be more misleading than to consider the gatt as a sort of MINI-ITO. The former was originally nothing more than an extension of one aborted chapter out of nine included in the Havana Charter. More precisely, the GATT of 1947 was merely the result of the tariff negotiations held as a quid pro quo for the wide range of non-tariff provisions that were to be agreed on in the Havana Charter. Since wide differences existed among nations as regards the forms of trade barriers applied, large tariffs reductions were the only way to find a counterpart to those non-tariffs provisions on which the conference was due to define a ruling.
The Havana Charter, on the contrary, was based on a comprehensive conception of international trade regulation that stemmed from the commitments taken by the allies in Article 7 of the Mutual Aid Agreement of 1942. The ITO was thus the first-ever attempt to reach a comprehensive agreement for underpinning a compatible set of precise rules to synthesise international liberalism with a high degree of policy autonomy at the domestic level. 14 The aim was to promote both social justice and economic growth by recognising diverse needs amongst countries and social classes. It is in this respect that the ITO tried to strike a balance between freer trade, full employment and development needs. Among the delegations that took part in the negotiations, few could disagree with these broad goals. But, as we saw in the preceding section, many did strike on the proper balance of this comprehensive agenda. Therefore, one should not be surprised that the final text of the Havana Charter was a patchwork of last-minute compromises on these widely accepted broader aims.
Within the extraordinary complexity of the agreement, four critical issues were at stake: the extent to which reducing discriminatory barriers to trade should take place, the exceptions provided by the Charter to counter the slides in business cycles and to avoid deflation, the delimitation of such diverse practices as subsidies, monopolies, state trading, intergovernmental agreements that could have an impact on trade in primary commodities; and the acceptance of the divergent needs of member-states with their different stages in economic development and economic planning.
Significance of the Stillborn ito from a Critical IPE perspective
MOST ACCOUNTS OF THE ITO PROJECT AND ITS SUBSEQUENT FAILURE IDENTIFY THREE BROAD SETS OF EXPLANATIONS.. First, at the international level, the ITO is seen as an emanation of the early commitments by the allies to give a global and long-term response to what was seen as the main cause of World War II: never again should beggar-thy-neighbour monetary and trade policies be allowed in the arena of international economy. After the War and in the making of the Cold War, the ITO could still be valued as the long-term counterpart to a containment doctrine which, as originally defined by Kennan (1947), relied more on economic and political issues than on a military build-up. But as of 1948 the American administration began to radically shift the balance in favour of more narrowly defined military options which became official policy when the final version of the famous NSC-68 guideline was adopted in 1950. 17 The hardening of the Cold War thus implied a subordination of long-term international economic institutions such as the ITO to short-term and pragmatic arrangements closely related to military considerations such as the rearmament programme of the early 1950s (Pollard 1985). However, as Diebold (1952:34-5) reminded us, the Cold War cannot be considered the primary cause of some major difficulties related to the attempt to negotiate a synthesis between free trade, Keynesianism and economic development.
Hence, another explanation focuses on domestic politics. The analysis raises the typical balance of liberal and social democratic forces among the states which took part in the negotiation. This resulted in harsh compromises to define the eventual blend to fix in the ITO Charter. This line of reasoning also explains the final blow that the project faced in the United States' Congress because of the dual opposition of both protectionist and liberal internationalist interests: the former criticising the width of loopholes in employment, development, balance of payments and investment rights; the latter finding it convenient to present much of their position in terms of the liberal internationalists' critique (Diebold 1952:11ff; Gardner 1969:379).
Finally, a more recent scholar, Susan Aaronson, has advanced a pluralist corporatist hypothesis to explain the ITO project in terms strictly limited to American policy-making issues. According to Aaronson (1996:169), "neither Roosevelt, nor Truman administration officials developed effective arguments to awaken the American public to the potential benefit of the ITO".. The end of the ITO lies therefore in the failure "to court the public as a counterweight to special interests" and in the development via the GATT of an alternative mechanism for multilateral trade liberalisation (Aaronson 1993:23).
These explanations are part of the story, but they do not explain the presence of contradictory provisions in the Charter beyond a failure in political marketing, a simple negotiation outcome, or the width of concessions given in a context where Cold War politics substituted for economic organisations like the ITO or the Bretton Woods institutions. These contradictory provisions were part of the comprehensive conception of international trade regulation as it was conceived from the very beginning of the early post-war commitments of the allies. Actually, the classical studies on the ITO by Gardner and Diebold do raise that point (Diebold 1952:11ff; Gardner 1969:379).. 18 According to Diebold, the men who propounded the ITO were trying to be very realistic in order to avoid the errors of the inter-war years and to produce an agreement that would be acceptable to a large number of countries. The result was indeed a detailed agreement, on a much broader scope than any previous international trade agreement, including a mixture of general principles with extensive lists of exceptions. To most informed observers, Diebold (1952:13) claims, this was "the only course feasible if the aim was to get a charter acceptable to enough governments to cover a substantial portion of world trade". According to him, "these praiseworthy efforts contained the seeds of the ITO's failure" (ibid.:11) because they led to a document that proved to be "unacceptable to that reputed arch-realist, the American businessman" (ibid..:14). Diebold convincingly presents the narrative which this conclusion implies, but he does not elaborate further the analytical framework that is likely to give a more satisfactory explanation to his conclusion.. The following discussion seeks to fill this gap by outlining a broader understanding so as to answer Diebold's two key unresolved questions: i.e. why the Havana Charter seems to have been "the only course feasible" and why this document eventually proved to be unacceptable.
In the field of International Relations (IR), the standard concept used for describing the post-war world is often drawn from Ruggie's (1982) seminal article on EMBEDDED LIBERALISM. By reasserting the conclusions laid down in the famous League of Nations Nurkes Report, Ruggie (1982:409) considers that the institutional objectives of the post-war world were "the essence of the embedded liberalism":
Unlike the economic nationalism of the thirties, it would be multilateral in character, unlike the liberalism of the gold standard and free trade, its multilateralism would be predicated upon domestic interventionism.
Critical historians have reached comparable conclusions from other perspectives. Hogan's NEO-CAPITALISM (1987) or Maier's CORPORATISM (1975; 1977; 1987) both refer to a compromise between liberal international economy and important state interventions in the domestic economy.
In the field of heterodox IPE, Ruggie's concept of embedded liberalism has generally been rejected on ontological, epistemological and theoretical grounds. In this regard, Cox's major contribution (1987; 1997) was to reassess the post-war era in a broader historical and conceptual framework that includes the three distinct levels of analysis of world order, forms of states and social relations of production. His analytical framework has been a major contribution to the development of a heterodox perspective in IPE. He has developed key issues such as the conflictual articulation between the economic and political spheres normalised by state/society mediations, the intimate connection between domestic and international realms, and the fact that the concrete shape taken by these categories and their relations are not given but socially produced and historically mutable. 19 According to Cox (1987:225), NEO-LIBERALISM is the concept that defines the core of the post-war hegemony of Pax Americana.. It paved the way to a dynamics referred to as the "internationalising of the state":
The center of gravity shifted from national economies to the world economy, but states were recognized as having a responsibility to both. The prospect of open contradiction between the two was obscured in the confidence that time and resources would be adequate to effect a reconciliation. The compromise worked as long as the world economy was indeed expanding.
Van der Pijl (1984; 1998) and other critical IPE scholars of the "Amsterdam school" (Holman 1992; Overbeek 1993) are more concerned with the articulation between the different functional forms of capital, and the spatial co-ordination required at both the domestic and international levels for their potential hegemonic reproduction. They deal with a comparable issue when they redefine the concept of CORPORATE LIBERALISM to explain the form of compromise sought in the era of Atlantic integration from the 1940s to 1960s. This concept denotes (van der Pijl 1984:xiv):
the synthesis between the original laissez-faire liberalism of the liberal-internationalist [class] fraction (the definition of liberalism still current in Europe) and the state intervention elicited by the requirements of large scale industry and organized labor, which in the period between the wars accompanied various forms of class conciliation generally referred to as corporatism.
However, one crucial issue is not specifically addressed by either van der Pijl's concept of corporate liberalism or Cox's neo-liberalism. There remains a DERIVATIVE ANTAGONISM that stems from the implementation of a new form of state legitimacy relying on key interventions in various aspects of the economic sphere. At stake is the external impact of these measures when, at the same time, states commit themselves to restore a liberal economy at the international level.
The issue relates to a profound redefinition of state-society relations. The Second World War generated a situation which took the field of contestability peculiar to capitalist economies away from the production line. Away from this traditional locus of the labour-capital antagonism, social struggles became ever more focused on the state itself, as the political authority responsible for implementing key social and economic objectives. A prime feature of this is the path-breaking CENTRALITY of the state in economic and social spheres. Secondly, the measures taken in this respect give a new VISIBILITY to the implication of the state in these domains; the government responsibility goes beyond welfare and macro-economic instruments; more generally, state legitimacy becomes more and more entwined with a bundle of social and economic functions which either aim at substituting for market failures, or compensating their most dangerous dysfunctions. Finally, such a situation gives rise to a new CONTESTABILITY of the state. Once the legitimacy of the state rests on its capacity for rational management of social and economic functions, states must fulfil these expectations. If they do not, the immediate sanction will be an attack on their legitimacy.
In this perspective, restoring an international liberal economy transfers to the international level the three features that characterise this kind of legitimacy: centrality, visibility, and contestability of the socio-economic functions of the state. In the light of these new functions, states compete with each other. This in turn impacts upon their mutual accountability and such competition can touch the very heart of their legitimacy. The inter-state rivalry potentially embodied in this context implies an understanding of the definition of the balance between market rules and state intervention. Besides the numerous problems raised by the hegemonic transition from Pax Britannica to Pax Americana, this issue is the core structural question which the ITO project aimed to address from its very inception. 20
Instead of revisiting the whole narrative presented in the first section of this article, one example here will suffice to illustrate this analytical framework. 21 Difficult choices had to be made by successive British governments during the whole period of negotiation of the ITO project, and especially between 1945 and 1948. The Truman administration was constantly pressing Britain to dismantle the mechanisms which linked its national economy with what was left of the Empire (e.g., Imperial Preferences, quantitative restrictions, subsidies, and Sterling Area). The Labour government in particular had to arbitrate between the following objectives: domestically, fulfil its promises of full employment and welfare as the new raison d'être of post-war politics and, at the same time, reply realistically to the international constraints brought about by its deep balance of payments problems and its commitments to Article 7 of the Mutual Aid Agreement and their subsequent implementation. Access to external markets, especially the Dollar market, was a key issue. However, just as important to guarantee the new central role of the state towards full employment and welfare were measures taken to shield the national economy against deflationary pressures of a huge balance of payments deficit. This was enough to justify quantitative restrictions both on the capital and current accounts. In this situation, the legitimacy of the state as implied by its capacity for rational management of the labour market is inextricably linked to the international trading system. At the negotiating table of the ITO, a fortiori in a context of profound monetary crisis, discussions relating to the use of import quotas in cases of serious balance of payments problems or for implementing full employment polices were among the most heated and controversial.
Conclusions
The analytical framework outlined here can explain the peculiar situation in which the post-war international economic order was designed.. At stake in negotiations like those involving the ITO were the definition, delimitation and normalisation between market rules and the external impact of several key new social and economic functions of the state, the enlarged visibility of state-society relations and the increased contestability of state legitimacy in such a context. Pauli (1997:11) uses an analogous explanation regarding the IMF when he considers that states "hold themselves accountable to one another for external implications of their own internal decisions on economic policy".
The eventual failure to create the ITO after the United States Congress' denial in 1950 can thus be assessed as being beyond genuine Cold War politics or American policy-making issues. The heterogeneity of capitalist economies in the post-war world was a key factor explaining the demise of the Havana Charter. This impelled the negotiators to take into account the grave imbalances that affected the international economy. They also had to recognise profound disparities in the conception of the economic and social roles of the state among the negotiating countries. It is in this context that the Charter ended up with too many rules departing from the market rule to satisfy the United States' Congress.
Finally, what lessons shall we draw from the stillborn ITO project? For more than a decade now, the conventional wisdom has stated that, as liberalisation of trade proceeds, the range of government practices considered to have an impact on trade broadens -- the implication of this being that the traditional distinction between a country's domestic and foreign trade policy has been broken down. That is why the transformation of the present international trading system has often been referred to as a 'new trade agenda' including all sorts of trade-related non-border measures (Feteketuky 1992; Ostry 1995; Cable 1996).. This study makes clear that the comprehensive scope of the so-called new trade agenda is in fact not so new. 50 years ago, the issues addressed by the Havana Charter already focused on 'non-tariff-non-border' measures such as various full employment provisions, agricultural support, subsidies, investment rights and even intellectual property. Yet, broadening the scope of trade policy issues did not mean applying market mechanisms to more and more aspects of social life. To paraphrase Helleiner's (1993) account of the Bretton Woods agreements, that they were to make finance the 'servant' rather than the 'master' of production, the provisions of the ITO Charter attempted to make trade the servant rather than the master of states whose economic and social functions became critical to their legitimacy. Thus, 50 years after the signing of the Havana Charter, this agreement still offers some lessons, albeit limited, for constructing credible alternatives to neoliberalism. In the context of increasing doubts about the world-wide consequences to which may lead a triumphant neoliberal globalisation, the key question addressed by the negotiators of the Havana Charter remains valid: how can we comprehensively define a compatible relationship between the transnationalisation of capitalism and the economic and social roles of political authority?
April 1999
References:
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Endnotes:
*: Jean-Christophe Graz is Chargé d'enseignement at the Graduate Institute of International Studies, Geneva, Switzerland. Back.
Note 1: In addition to the references in note 3 below, it should be noted that this article was written after disagreement arose in the joint paper I began writing on the same subject with Daniel Drache (1999). The key points of disagreement are the following. Theoretically, Drache did not build a framework of analysis, nor did he conduct any archival research; he mostly confines his study to a phenomenological narrative based on the writings of economists more or less related to the ITO project. This implies that he also discards most of the actual negotiation process that took place for many years. Historically, Drache gives significance to the ITO project which allows too big a place to full employment objectives and undermines the weight of a more free-trade orientation as pushed by a number of delegations, and especially the United States. Moreover, Drache considers the ITO as the primus inter pares of the international economic organisations! ! planned for the post-war era, whereas most accounts concur on the fact that, if any organisation were supposed to stand above the others, this was the IMF (Penrose 1953; Gardner 1969; Pressnell 1986; Woods 1990); subsequently, the beginning of the Cold War meant that ad hoc initiatives more closely linked to military considerations would become surrogates for long-term international organisations. Back.
Note 2: Also referred to in the text as the Havana Charter. Back.
Note 3: For a detailed study on the ITO project by the author of this article, see (Graz 1999). The most comprehensive analyses of the ITO project were written around the time of the American ratification debate by American officials who participated at the highest level in the negotiations (U.S.Congress 1948; Wilcox 1949; Brown 1950; Diebold 1952; Penrose 1953). Few academic studies have focused specifically on the ITO; it is nevertheless a part of the classical study of Gardner (1969) and more recently Woods (1990) and Burnham (1990). For a recent study specifically focused on the ITO from a perspective strictly limited to American policy-making issues, see Aaronson (1996). Back.
Note 4: See note 3 above for references. Back.
Note 5: Article 7 of the Mutual Aid Agreement reads as follows : "In the final determination of the benefits to be provided to the United States of America by the Government of the United Kingdom in return for aid furnished under the Act of Congress of March 11, 1941, the terms and conditions thereof shall be such as not to burden commerce between the two countries, but to promote mutually advantageous economic relations between them and the betterment of world-wide economic relations. To that end, they shall include provision for agreed action by the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods, which are the material foundations of the liberty and welfare of all peoples; to the elimination of all forms of discriminatory treatment in inter! ! national commerce, and to the reduction of tariffs and other trade barriers; and in general, to the attainment of all the economic objectives set forth in the Joint Declaration made on Aug. 12, 1941, by the President of the United States of America and the Prime Minister of the United Kingdom.
At an early convenient date, conversations shall be begun between the two governments with a view to determining, in the light of governing economic conditions, the best means of attaining the above-stated objectives by their own agreed action and of seeking the agreed action of other like-minded governments." Back.
Note 6: On the extensive role on post-war planning detained by this group of experts funded by the Rockefeller Foundation, see in particular Shoup and Minter (1977), Santorro (1992), Parmar (1995). Back.
Note 7: After several revisions, the "Commercial Union" scheme gained Cabinet approval in July 1943 as the basis of discussion for the bilateral commercial talks held in Washington in autumn 1943; see "Commercial Policy", W. P. (43) 334, memorandum by the President of the Board of Trade to the War Cabinet, 27 July 1943, Public Record Office, Kew (London) (hereafter PRO), CAB 66/39. For the various positions among British interests, see in particular "Papers on Post-War Commercial Policy", 5 March 1943, PRO, CAB 123/221. For Meade’s early drafts, see "Proposals for a Commercial Clearing Union", 25 July 1942, 1 August 1942, 17 August 1942, PRO, T 230/125. Back.
Note 8: "Informal Economic Discussions, Minutes of the Committee on Measures for Stimulating Commerce", 23 September -- 11 October 1943, National Archives of the United States, Washington D.C. (hereafter NA), Record Group 43, Lot Files 57D-284, Box 34. Back.
Note 9: For similar arguments concerning the transnational nature of alliances during that period, see also van der Pijl (1984:107-137), Murphy (1991:237-40), Ikenberry (1992), Helleiner (1994:25-50). Back.
Note 10: Imperial Preferences were the system of discriminatory tariffs negotiated during the Ottawa Conference of 1932 in order to reinforce commercial and financial solidarity within the Empire. Back.
Note 11: "Minute of a meeting between TUC and the Board of Trade", 13 March 1946, MSS 292/520.9/2, Modern Record Centre, University of Warwick Library, Coventry, England. Back.
Note 12: Havana to Foreign Office, Tel. #43, 8 January 1948, PRO, FO 371/68874 (quoted in Aaronson (1996:94)).Back.
Note 13: "If we get a Charter in March" and "Possible adjournment of Havana Conference", Wilcox to Clayton, 29 December 1947; Brown to Clayton, 30 December 1947; Lovett to Wilcox, 3 January 1948; Brown to Wilcox, 5 January 1948, NA, Record Group 43, LF 47D-284, box 144. Back.
Note 14: A good illustration of the normative framework of the ITO project is laid down in the wartime League of Nations report on international trade (Société des Nations 1942). Back.
Note 15: British Imperial Preferences were not totally eliminated before 1973, when Britain joined the European Economic Community. Back.
Note 16: See, for example, "Minutes of the Meeting of the Executive Committee on Economic Foreign Policy, M-27/44", 6 October 1944, NA, Record Group 353, Lot 122, box 56. Back.
Note 17: NSC-68 is a directive of the U.S. National Security Council which provided for the huge military build-up that took place in the West from 1950 onwards. Back.
Note 18: The most relevant work on this point is Schwartz (1994:205-19). It is also a key issue in the broader historical study of Woods (1990). Back.
Note 19: For heterodox IPE, see inter alia Gill and Law (1988); Strange (1988); Murphy and Tooze (1991); Gills and Palan (1994); Underhill and Stubbs (1994), Hettne (1995). Back.
Note 20: It should be noted that in the early 1970s, scholars such as Habermas (1976), Offe (1972), O’Connor (1973) and Wolfe (1977) produced critical studies on the state legitimacy problems that most countries in the industrialised world began to encounter. Whereas these studies contributed in some respect to the analytical framework outlined here, none of them take properly into account the international level and the peculiar situation offered in this regard by the post-war era. See also the classical studies of Schonfield (1965) and Galbraith (1967) which, like the others, do not include an international perspective in their analysis. Back.
Note 21: For a comprehensive history of the stillborn Havana Charter following this analytical framework, see Graz (1999). Back.